Football’s international governing body, Fifa, is facing pressure to rule next month that six Israeli football clubs based in illegal settlements in the occupied Palestinian territories should either relocate to Israel or be banned from Fifa-recognised competitions.

The clubs in question, all located in the West Bank, include Beitar Givat Ze’ev, Beitar Ironi Ariel, Ironi Yehuda, Beitar Ironi Maale Adumim and Hapoel Bik’at Hayarden, all of which play in the lower Israeli leagues.

The publication of the report comes amid hints from the South African sports official Tokyo Sexwale, who heads Fifa’s committee set up to consider the issue, that it will present recommendations on a number of complaints from Palestinian football concerning Israel, including the issue of settlement teams.

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The move is opposed by Israel’s football association and by the clubs involved. They say that a ban on playing in settlements would punish children involved with the clubs, as well as the clubs themselves, and that Fifa has no authority to define what is Israeli territory.

At the centre of the controversy is Fifa’s own rulebook which says that football clubs which are Fifa member affiliates, such as the Israel Football Association (IFA), may not play on the territory of other football associations without the other association’s permission.

Settlements are built on territory that is regarded under international law as illegally occupied by Israel, so critics argue that the settlement clubs are playing outside the IFA’s territory and without the permission of the Palestinian Football Association [PFA], which has been recognised by Fifa since 1998.

HRW and others argue that Fifa is in effect legitimising the 49-year long Israeli occupation by permitting the games to take place.

Although the clubs involved are small, the issue has become an increasingly contentious one for world football. While the issue of the IFA’s alleged breach of Fifa rules has been under the spotlight for some time, the HRW report goes further, suggesting that Fifa is in breach of its own new ethical guidelines, introduced as part of moves to clean up its image.

“By allowing the IFA to hold matches inside settlements, Fifa is engaging in business activity that supports Israeli settlements, contrary to the human rights commitments it recently affirmed,” HRW says.

“An April 2016 report, commissioned by Fifa and written by John Ruggie, the author of the United Nations Guiding Principles on Business and Human Rights (UNGP), outline the human rights responsibilities of businesses. Newly-elected Fifa president Gianni Infantino took office pledging to steer Fifa out of the human rights and corruption scandals of recent years, so that fans and players can focus on the ‘beautiful game’ of football. Doing business in the settlements is inconsistent with these commitments,” the group added.

Israeli youth players from the Aroni Ariel football club attend a training session at their stadium in the Israeli West Bank settlement of Ariel. Photograph: Jack Guez/AFP/Getty Images

HRW argues that “settlement playing grounds, including one indoor hall, are built on land that has been unlawfully taken from Palestinians”.

It also says that financial documents it has reviewed show that the IFA is engaging in business activity that supports the settlements and that “the clubs provide services to Israelis but do not and cannot provide them to Palestinians, who are not allowed to enter settlements except as labourers bearing special permits”.

The IFA accuses its critics of being “politically motivated” and acting beyond the remit of Fifa to settle.

Despite the indication by Sexwale in a letter in August that his committee would present recommendations, Shlomi Barzel of the IFA said his organisation had “no sense” where the issue was going, suggesting that any decisions would be left until next year’s Fifa congress.

The issue had the potential to become a “big problem for Israeli football”, Barzel said. On the argument that Israeli clubs were playing outside Israeli football’s territory, he said: “It is very simple. This has nothing to do with Fifa. Those areas are disputed.”

Barzel declined to comment on the Human Rights Watch report or to affirm whether he believed that the settlement clubs were based in Israel’s internationally recognised borders.

Additionally, football clubs in Nagorno-Karabakh, Northern Cyprus, Luhansk Republic, Transnistria, Abkhazia and South Ossetia are excluded from Fifa and its national competitions.

That letter argued: “The international consensus is that the West Bank, including east Jerusalem, is an ‘occupied Palestinian territory,’ not a disputed territory. The EU as well as the United States routinely exclude settlements from their cooperation programmes and agreements with Israel – and Fifa should do the same.”

Sari Bashi of HRW said: “Whatever political decisions may or may not be made about the settlements in the future, they represent and contribute to serious human rights violations right now. This problem has one solution: Fifa should tell the IFA clubs to practise, pass, play all you want – but only inside Israel.”